FORM 10-K. Commission file number: NOBLE CORPORATION (Exact name of registrant as specified in its charter) Switzerland

Transcription

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2009 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: NOBLE CORPORATION (Exact name of registrant as specified in its charter) Switzerland (State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number) Dorfstrasse 19A Baar, Switzerland 6430 (Address of principal executive offices) (Zip Code) Registrant s Telephone Number, Including Area Code: 41 (41) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Shares, Par Value 4.80 CHF Per Share New York Stock Exchange Commission file number: NOBLE CORPORATION (Exact name of registrant as specified in its charter) Cayman Islands (State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number) P.O. Box 309 GT, Ugland House S. Church Street Georgetown, Grand Cayman Islands, BWI (Address of principal executive offices) (Zip Code) Registrant s Telephone Number, Including Area Code: (345) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered N/A N/A Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the proceeding 12 months. Yes [X] No [ ]

2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b- 2 of the Exchange Act. Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of June 30, 2009, the aggregate market value of the registered shares of Noble Corporation (Switzerland) held by non-affiliates of the registrant was $7.8 billion based on the closing sale price as reported on the New York Stock Exchange. Number of shares outstanding at February 18, 2010: Noble Corporation (Switzerland) 257,375,936. DOCUMENTS INCORPORATED BY REFERENCE The proxy statement for the 2010 annual general meeting of the shareholders of Noble Corporation (Switzerland) will be incorporated by reference into Part III of this form 10-K. This Form 10-K is a combined annual report being filed separately by two registrants: Noble Corporation, a Swiss Corporation ( Noble-Swiss ), and its wholly owned subsidiary Noble Corporation, a Cayman Islands Company ( Noble- Cayman ). Noble Cayman meets the conditions set forth in General Instructions I(1) of Form 10-K and is therefore filing this Form 10-K with the abbreviated disclosure format contemplated by paragraphs (a) and (c) of General Instruction I(2) of Form 10-K..

3 TABLE OF CONTENTS PAGE PART I Item 1. Business... 2 Item 1A. Risk Factors... 9 Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules SIGNATURES This combined Annual Report on Form 10-K is separately filed by Noble Corporation, a Swiss corporation ( Noble- Swiss ), and Noble Corporation, a Cayman Islands company ( Noble-Cayman ). Information in this filing relating to Noble-Cayman is filed by Noble-Swiss and separately by Noble-Cayman on its own behalf. Noble-Cayman makes no representation as to information relating to Noble-Swiss (except as it may relate to Noble-Cayman) or any other affiliate or subsidiary of Noble-Swiss. Because Noble-Cayman meets the conditions specified in General Instructions I(1) to Form 10-K, it is permitted to use the abbreviated disclosure format for wholly owned subsidiaries of reporting companies set forth in General Instruction I(2) to Form 10-K. Accordingly, Noble-Cayman has omitted from this report the information called for by Item 6 (Selected Financial Data) and Item 7 (Management s Discussion and Analysis of Financial Condition and Results of Operations) of Part II of Form 10-K and the following items of Part III of Form 10-K: Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and Related Transactions). This report should be read in its entirety as it pertains to each Registrant. Except where indicated, the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements are combined. References in this Annual Report on Form 10-K to Noble, the Company, we, us, our and words of similar meaning refer collectively to Noble-Swiss and its consolidated subsidiaries, including Noble-Cayman, after March 26, 2009 and to Noble-Cayman and its consolidated subsidiaries for periods through March 26, Noble-Swiss became a successor registrant to Noble-Cayman under the Securities Exchange Act of 1934, as amended (the Exchange Act ) pursuant to Rule 12g-3 of the Exchange Act as a result of consummation of the Transaction described in Item 1 of Part I of this Annual Report on Form 10-K. 1

4 PART I ITEM 1. BUSINESS. GENERAL Noble Corporation, a Swiss corporation ( Noble or, together with its consolidated subsidiaries, unless the context requires otherwise, the Company, we, our and words of similar import), is a leading offshore drilling contractor for the oil and gas industry. We perform contract drilling services with our fleet of 62 mobile offshore drilling units located worldwide. This fleet consists of 13 semisubmersibles, four dynamically positioned drillships, 43 jackups and two submersibles. The fleet count includes two units under construction: one dynamically positioned, ultra-deepwater, harsh environment Globetrotter-class drillship, and one deepwater dynamically positioned semisubmersible. For additional information on the specifications of the fleet, see Item 2. Properties. - Drilling Fleet. As of January 28, 2010, approximately 87 percent of our fleet was deployed in the following areas: Middle East, India, Mexico, the North Sea, Brazil, and West Africa. Noble and its predecessors have been engaged in the contract drilling of oil and gas wells since CONSUMMATION OF 2009 MIGRATION On March 26, 2009, we completed a series of transactions that effectively changed the place of incorporation of our parent holding company from the Cayman Islands to Switzerland. As a result of these transactions, Noble-Cayman, the previous publicly traded Cayman Islands parent holding company, became a direct, wholly-owned subsidiary of Noble-Swiss, the current parent company. Noble-Swiss principal asset is 100% of the shares of common stock of Noble-Cayman. The consolidated financial statements of Noble-Swiss include the accounts of Noble-Cayman, and Noble-Swiss conducts substantially all of its business through Noble-Cayman and its subsidiaries. In connection with this transaction, we relocated our principal executive offices, executive officers and selected personnel to Geneva, Switzerland. BUSINESS STRATEGY Our long-standing business strategy is the active expansion of our worldwide offshore drilling and deepwater capabilities through acquisitions, upgrades and modifications, and the deployment of drilling assets in important geological areas. We have also actively expanded our offshore drilling and deepwater capabilities in recent years through the construction of new rigs. In 2009, we continued our expansion strategy as indicated by the following developments and activities: we completed construction on the Noble Scott Marks, the last of three F&G JU-2000E enhanced premium independent leg cantilevered jackups Noble has added to its fleet since 2007, that began operations in the third quarter of 2009 in the North Sea; we completed construction on the Noble Danny Adkins, an ultra-deepwater semisubmersible, which left the shipyard during the fourth quarter of 2009 and began to operate under a long-term contract in the Gulf of Mexico; we continued construction on two additional newbuild ultra-deepwater semisubmersibles, the Noble Dave Beard, which was completed and left the shipyard in the fourth quarter and is scheduled to commence drilling operations in the first quarter of 2010, and the Noble Jim Day, which is scheduled for delivery in the second quarter of 2010; and we commenced construction on one dynamically positioned, ultra-deepwater, harsh environment Globetrotter-class drillship, which is scheduled to be delivered in the second half of Newbuild capital expenditures totaled $717 million during At the end of 2009, shipyards worldwide reportedly had received commitments to construct 58 jackups and 76 deepwater floaters, including our units. These jackups and floaters are expected to be delivered between 2010 and The majority of these jackups and floaters reportedly do not have a contractual commitment from a 2

5 customer and are referred to in the offshore drilling industry as being built on speculation. The introduction of non-contracted rigs into the marketplace could have an adverse affect on the supply of vessels in the marketplace which compete for drilling service contracts and therefore could negatively impact the dayrates we are able to achieve. Our strategy on new construction has typically been to expand our drilling fleet with technologically advanced units only in connection with a long-term drilling contract that covers a substantial portion of our capital investment and provides an acceptable return on our capital employed. Although we commenced construction of the Globetrotter without a long-term drilling contract in place, we believe that a long-term contract will be achieved in the near term because of the technologically innovative design of the drillship and the strength in the deepwater market. Part of our growth strategy is to participate in the consolidation of the offshore drilling industry to the extent we believe we can create shareholder value. From time to time, we evaluate other individual rig transactions and business combinations with other parties, and we will continue to consider business opportunities that promote our growth strategy. In recent years, the drilling industry experienced significant increases in dayrates for drilling services in most market segments, a tightening market for drilling equipment, and a shortage of personnel. This environment drove operating costs higher and magnified the importance of recruiting, training and retaining skilled personnel. While the recent global financial crisis has created an environment of uncertainty and downward pressure on both dayrates and certain types of costs, to date it has not had a material effect on many of our costs. In recognition of the importance of our offshore operations personnel in achieving a safety record that has consistently outperformed the offshore drilling industry sector and to retain such personnel, we have implemented a number of key operations personnel retention programs. We believe these programs will complement our other short and long-term incentive programs to attract and retain the skilled personnel we need to maintain safe and efficient operations. DRILLING CONTRACTS We typically employ each drilling unit under an individual contract. Although the final terms of the contracts result from negotiations with our customers, many contracts are awarded based upon competitive bidding. Our drilling contracts generally contain the following terms: contract duration extending over a specific period of time or a period necessary to drill one or more wells; provisions permitting early termination of the contract by the customer (i) if the unit is lost or destroyed or (ii) if operations are suspended for a specified period of time due to either breakdown of equipment or force majeure events beyond our control and the control of the customer; options to extend the contract term, generally upon advance notice to us and usually (but not always) at mutually agreed upon rates; payment of compensation to us (generally in U.S. Dollars although some customers, typically national oil companies, require a part of the compensation to be paid in local currency) on a daywork basis, so that we receive a fixed amount for each day ( dayrate ) that the drilling unit is operating under contract (a lower rate or no compensation is payable during periods of equipment breakdown and repair or adverse weather or in the event operations are interrupted by other conditions, some of which may be beyond our control); payment by us of the operating expenses of the drilling unit, including labor costs and the cost of incidental supplies; and provisions that allow us to recover certain cost increases from certain of our customers. The terms of some of our drilling contracts permit early termination of the contract by the customer, without cause, generally exercisable upon advance notice to us and in some cases upon the making of an early termination payment to us. Our drilling contracts with Petróleos Mexicanos ( Pemex ) in Mexico, for example, allow early cancellation on 30 days or less notice to us without Pemex making an early termination payment. 3

6 Generally, our contracts allow us to recover our mobilization and demobilization costs associated with moving a drilling unit from one regional location to another. When market conditions require us to bear these costs, our operating margins are reduced accordingly. We cannot predict our ability to recover these costs in the future. For shorter moves such as field moves, our customers have generally agreed to bear the costs of moving the unit by paying us a reduced dayrate or move rate while the unit is being moved. In addition, many client contracts for newbuild rigs contain termination provisions for late delivery. The drilling contracts for our newbuild rigs currently under construction similarly include provisions that would allow our customers to terminate the contract for late delivery. For example, the drilling contract for the Noble Jim Day, scheduled for delivery in the second quarter of 2010, contains a termination right in the event the rig is not ready to commence operations by December 31, The drilling contract for the Noble Dave Beard currently gives the customer the right to terminate the contract and also gives the customer the right to apply a penalty for delay beyond the August 2009 delivery date. During times of depressed market conditions, our customers may seek to avoid or reduce their obligations to us under term drilling contracts or letter agreements or letters of intent for drilling contracts. A customer may no longer need a rig due to a reduction in its exploration, development or production program, or it may seek to obtain a comparable rig at a lower dayrate. For a discussion of our backlog of commitments for contract drilling services, please read Management s Discussion and Analysis of Financial Condition and Results of Operations Contract Drilling Services Backlog. OFFSHORE DRILLING OPERATIONS Contract Drilling Services We conduct offshore contract drilling operations, which accounted for approximately 99 percent, 98 percent and 93 percent of operating revenues for the years ended December 31, 2009, 2008 and 2007, respectively. We conduct our contract drilling operations principally in the Middle East, India, U.S. Gulf of Mexico, Mexico, the North Sea, Brazil, and West Africa. Pemex accounted for approximately 23 percent, 20 percent and 15 percent of our total operating revenues for the years ended December 31, 2009, 2008 and 2007, respectively. Revenues from Royal Dutch Shell plc and its affiliates accounted for 12 percent of total operating revenues during Royal Dutch Shell plc did not account for more than 10 percent of total operating revenues in either 2008 or No other single customer accounted for more than 10 percent of our total operating revenues in 2009, 2008 or Labor Contracts We perform services under labor contracts for drilling and workover activities covering two rigs under a labor contract (the Hibernia Contract ) off the east coast of Canada. We do not own or lease these rigs. Under our labor contracts, we provide the personnel necessary to manage and perform the drilling operations from drilling platforms owned by the operator. The Hibernia Contract extends through January COMPETITION The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and maintenance costs. Some of our competitors may have access to greater financial resources than we do. In the provision of contract drilling services, competition involves numerous factors, including price, rig availability and suitability, experience of the workforce, efficiency, safety performance record, condition of equipment, operating integrity, reputation, industry standing and client relations. We believe that we compete favorably with respect to all of these factors. We follow a policy of keeping our equipment well maintained and technologically competitive. However, our equipment could be made obsolete by the development of new techniques and equipment. 4

7 We compete on a worldwide basis, but competition may vary by region at any particular time. Demand for offshore drilling equipment also depends on the exploration and development programs of oil and gas producers, which in turn are influenced by the financial condition of such producers, by general economic conditions and prices of oil and gas, and by political considerations and policies. In addition, industry-wide shortages of supplies, services, skilled personnel and equipment necessary to conduct our business can occur. We cannot assure that any such shortages experienced in the past would not happen again or that any shortages, to the extent currently existing, will not continue or worsen in the future. GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS Political developments and numerous governmental regulations, which may relate directly or indirectly to the contract drilling industry, affect many aspects of our operations. Non-U.S. contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipping and operation of drilling units, the reduction of greenhouse gas emissions to address climate change, currency conversions and repatriation, oil and gas exploration and development, taxation of offshore earnings and earnings of expatriate personnel and use of local employees and suppliers by foreign contractors. A number of countries actively regulate and control the ownership of concessions and companies holding concessions, the exportation of oil and gas and other aspects of the oil and gas industries in their countries. In addition, government action, including initiatives by the Organization of Petroleum Exporting Countries ( OPEC ), may continue to contribute to oil price volatility. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by oil and gas companies and their need for drilling services and may continue to do so. The regulations applicable to our operations include provisions that regulate the discharge of materials into the environment or require remediation of contamination under certain circumstances. Many of the other countries in whose waters we operate from time to time also regulate the discharge of oil and other contaminants in connection with drilling operations. Failure to comply with these laws and regulations or to obtain or comply with permits may result in the assessment of administrative, civil and criminal penalties, imposition of remedial requirements and the imposition of injunctions to force future compliance. We have made and will continue to make expenditures to comply with environmental requirements. To date we have not expended material amounts in order to comply, and we do not believe that our compliance with such requirements will have a material adverse effect upon our results of operations or competitive position or materially increase our capital expenditures. Although these requirements impact the energy and energy services industries, generally they do not appear to affect us in any material respect that is different, or to any materially greater or lesser extent, than other companies in the energy services industry. However, our business and prospects could be adversely affected to the extent laws are enacted or other governmental action is taken that prohibits or restricts our customers exploration and production activities, results in reduced demand for our services or imposes environmental protection requirements that result in increased costs to us, our customers or the oil and natural gas industry in general. The following is a summary of some of the existing laws and regulations to which our business operations are subject: Spills and Releases. The Comprehensive Environmental Response, Compensation, and Liability Act ( CERCLA ), and analogous state laws and regulations, impose joint and several liability, without regard to fault or the legality of the original act, on certain classes of persons that contributed to the release of a hazardous substance into the environment. These persons include the owner and operator of the site where the release occurred, past owners and operators of the site, and companies that disposed or arranged for the disposal of the hazardous substances found at the site. Responsible parties under CERCLA may be liable for the costs of cleaning up hazardous substances that have been released into the environment and for damages to natural resources. In the course of our ordinary operations, we may generate waste that may fall within CERCLA s definition of a hazardous substance. However, we have not to date received notification that we are or may be potentially responsible for cleanup costs under CERCLA. 5

8 The Oil Pollution Act ( OPA ). The U.S. Oil Pollution Act of 1990 ( OPA ) and regulations thereunder impose certain operational requirements on offshore rigs operating in the U.S. Gulf of Mexico and govern liability for leaks, spills and blowouts involving pollutants. The OPA imposes strict, joint and several liability on responsible parties for damages, including natural resource damages, resulting from oil spills into or upon navigable waters, adjoining shorelines or in the exclusive economic zone of the United States. A responsible party includes the owner or operator of an onshore facility and the lessee or permittee of the area in which an offshore facility is located. The OPA establishes a liability limit for onshore facilities of $350 million, while the liability limit for offshore facilities is equal to all removal costs plus up to $75 million in other damages. These liability limits may not apply if a spill is caused by a party s gross negligence or willful misconduct, the spill resulted from violation of a federal safety, construction or operating regulation, or if a party fails to report a spill or to cooperate fully in a clean-up. Regulations under the OPA require owners and operators of rigs in United States waters to maintain certain levels of financial responsibility. The failure to comply with the OPA s requirements may subject a responsible party to civil, criminal, or administrative enforcement actions. We are not aware of any action or event that would subject us to liability under the OPA, and we believe that compliance with the OPA s financial assurance and other operating requirements will not have a material impact on our operations or financial condition. Waste Handling. The Resource Conservation and Recovery Act ( RCRA ), and analogous state and local laws and regulations govern the management of wastes, including the treatment, storage and disposal of hazardous wastes. RCRA imposes stringent operating requirements, and liability for failure to meet such requirements, on a person who is either a generator or transporter of hazardous waste or an owner or operator of a hazardous waste treatment, storage or disposal facility. RCRA specifically excludes from the definition of hazardous waste drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil and natural gas. A similar exemption is contained in many of the state counterparts to RCRA. As a result, we are not required to comply with a substantial portion of RCRA s requirements because our operations generate minimal quantities of hazardous wastes. However, these wastes may be regulated by EPA or state agencies as solid waste. In addition, ordinary industrial wastes, such as paint wastes, waste solvents, laboratory wastes, and waste compressor oils, may be regulated under RCRA as hazardous waste. We do not believe the current costs of managing our wastes, as they are presently classified, to be significant. However, any repeal or modification of the oil and natural gas exploration and production exemption, or modifications of similar exemptions in analogous state statutes, would increase the volume of hazardous waste we are required to manage and dispose of and would cause us, as well as our competitors, to incur increased operating expenses with respect to our U.S. operations. Water Discharges. The Federal Water Pollution Control Act of 1972, as amended, also known as the Clean Water Act, and analogous state laws and regulations impose restrictions and controls on the discharge of pollutants into federal and state waters. These laws also regulate the discharge of storm water in process areas. Pursuant to these laws and regulations, we are required to obtain and maintain approvals or permits for the discharge of wastewater and storm water. We do not anticipate that compliance with these laws will cause a material impact on our operations or financial condition. Air Emissions. The Federal Clean Air Act and associated state laws and regulations restrict the emission of air pollutants from many sources, including oil and natural gas operations. New facilities may be required to obtain permits before operations can commence, and existing facilities may be required to obtain additional permits and incur capital costs in order to remain in compliance. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the Clean Air Act and associated state laws and regulations. Except as outlined below regarding climate change issues, we believe that compliance with the Clean Air Act and analogous state laws and regulations will not have a material impact on our operations or financial condition. Climate Change. There is increasing attention in the United States and worldwide concerning the issue of climate change and the effect of greenhouse gas ( GHG ) emissions. On September 22, 2009, the United States Environmental Protection Agency ("EPA") issued a Mandatory Reporting of Greenhouse Gases final rule ( Reporting Rule ). The Reporting Rule establishes a new comprehensive scheme requiring operators of stationary sources emitting more than established annual thresholds of carbon dioxide-equivalent GHGs to inventory and 6

9 report their GHG emissions annually on a facility-by-facility basis. In addition, on December 15, 2009, the EPA published a Final Rule finding that current and projected concentrations of six key GHGs in the atmosphere threaten public health and welfare of current and future generations. The EPA also found that the combined emissions of these GHGs from new motor vehicles and new motor vehicle engines contribute to pollution that threatens public health and welfare. This Final Rule, also known as the EPA's Endangerment Finding, does not impose any requirements on industry or other entities directly. However, the EPA must now finalize motor vehicle GHG standards, the effect of which could reduce demand for motor fuels refined from crude oil. Finally, according to the EPA, the final motor vehicle GHG standards will trigger construction and operating permit requirements for stationary sources. Further, proposed legislation has been introduced in Congress that would establish an economy-wide cap on emissions of GHGs in the United States and would require most sources of GHG emissions to obtain GHG emission allowances corresponding to their annual emissions of GHGs. Moreover, in 2005, the Kyoto Protocol to the 1992 United Nations Framework Convention on Climate Change, which establishes a binding set of emission targets for greenhouse gases, became binding on all those countries that had ratified it. International discussions are currently underway to develop a treaty to replace the Kyoto Protocol after its expiration in While it is not possible at this time to predict how legislation that may be enacted to address GHG emissions would impact our business, the modification of existing laws or regulations or the adoption of new laws or regulations curtailing exploratory or developmental drilling for oil and gas could materially and adversely affect our operations by limiting drilling opportunities or imposing materially increased costs. Moreover, incentives to conserve energy or use alternative energy sources could have a negative impact on our business if such incentives reduce the worldwide demand for oil and gas. Safety. The Occupational Safety and Health Act, or OSHA, and other similar laws and regulations govern the protection of the health and safety of employees. The OSHA hazard communication standard, EPA community right-to-know regulations under Title III of CERCLA and analogous state statutes require that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governments and citizens. We believe that we are in substantial compliance with these requirements and with other applicable OSHA requirements. EMPLOYEES At December 31, 2009, we had approximately 5,700 employees, including employees engaged through labor contractors or agencies. Approximately 84 percent of our employees were engaged in operations outside of the U.S. and approximately 16 percent were engaged in U.S. operations. We are not a party to any collective bargaining agreements that are material, and we consider our employee relations to be satisfactory. FINANCIAL INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC AREAS Information regarding our revenues from external customers, segment profit or loss and total assets attributable to each segment for the last three fiscal years is presented in Note 15 to our consolidated financial statements included in this Annual Report on Form 10-K. Information regarding our operating revenues and identifiable assets attributable to each of our geographic areas of operations for the last three fiscal years is presented in Note 15 to our consolidated financial statements included in this Annual Report on Form 10-K. AVAILABLE INFORMATION Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934 are available free of charge at our internet website at These filings are also available to the public at the U.S. Securities and Exchange Commission s ( SEC ) Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC The public may obtain information on the operation of the Public 7

10 Reference Room by calling the SEC at SEC Electronic filings with the SEC are also available on the SEC internet website at You may also find information related to our corporate governance, board committees and company code of ethics at our website. Among the information you can find there is the following: Corporate Governance Guidelines; Audit Committee Charter; Nominating and Corporate Governance Committee Charter; Executive Compensation Committee Charter; and Code of Business Conduct and Ethics. 8

11 ITEM 1A. RISK FACTORS. You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk factors could affect our business, operating results and financial condition, as well as affect an investment in our shares. Risk Factors Relating to Our Business Our business depends on the level of activity in the oil and gas industry, which is significantly affected by volatile oil and gas prices. Demand for drilling services depends on a variety of economic and political factors and the level of activity in offshore oil and gas exploration, development and production markets worldwide. Commodity prices, and market expectations of potential changes in these prices, may significantly affect this level of activity. However, higher prices do not necessarily translate into increased drilling activity since our clients expectations of future commodity prices typically drive demand for our rigs. Oil and gas prices are extremely volatile and are affected by numerous factors beyond our control, including: the political environment of oil-producing regions, including uncertainty or instability resulting from an outbreak or escalation of armed hostilities or acts of war or terrorism; worldwide demand for oil and gas, which is impacted by changes in the rate of economic growth in the U.S. and other non-u.s. economies; the ability of OPEC to set and maintain production levels and pricing; the level of production in non-opec countries; the laws and regulations of the various governments regarding exploration and development of their oil and gas reserves; laws and regulations related to environmental or energy security matters, including those addressing alternative energy sources and the risks of global climate change; the cost of exploring for, developing, producing and delivering oil and gas; the discovery rate of new oil and gas reserves; the rate of decline of existing and new oil and gas reserves; available pipeline and other oil and gas transportation capacity; the ability of oil and gas companies to raise capital; adverse weather conditions (such as hurricanes and monsoons) and seas; the development and exploitation of alternative fuels; tax policy; advances in exploration, development and production technology; and availability of, and access to, suitable acreage bearing hydrocarbons for our customers. Demand for our drilling services may decrease due to events beyond our control and some of our customers could seek to cancel, terminate or renegotiate their contracts. Our business could be impacted by events beyond our control including changes in our customers drilling programs or budgets or their liquidity (including access to capital), changes in, or prolonged reductions of, prices for oil and gas, or shifts in the relative strength of various geographic drilling markets brought on by economic slowdown, or regional or worldwide recession, any of which could result in deterioration in demand for our drilling services. In addition, our customers may cancel drilling contracts or letter agreements or letters of intent for drilling contracts, or exercise early termination rights found in some of our drilling contracts or available under local law, for a variety of reasons, many of which are beyond our control. Depending upon market conditions, our customers may also seek renegotiation of firm drilling contracts to reduce their obligations. If the future level of demand for 9

12 our drilling services or if future conditions in the offshore contract drilling industry decline, our financial position, results of operations and cash flows could be adversely affected. We may not be able to renew or replace expiring contracts. We have a number of contracts that will expire in 2010 and Our ability to renew these contracts or obtain new contracts and the terms of any such contracts will depend on market conditions and the condition of our customers. We may be unable to renew our expiring contracts or obtain new contracts for the rigs under contracts that have expired or been terminated, and the dayrates under any new contracts may be below, perhaps substantially below, the existing dayrates, which could have a material adverse effect on our results of operations and cash flows. The contract drilling industry is a highly competitive and cyclical business with intense price competition. If we are not able to compete successfully, our profitability may be reduced. The offshore contract drilling industry is a highly competitive and cyclical business characterized by high capital and maintenance costs. Drilling contracts are traditionally awarded on a competitive bid basis. Intense price competition, rig availability, location and suitability, experience of the workforce, efficiency, safety performance record, technical capability and condition of equipment, operating integrity, reputation, industry standing and client relations are all factors in determining which contractor is awarded a job. Mergers among oil and natural gas exploration and production companies from time to time may reduce the number of available clients, resulting in increased price competition. Our industry has historically been cyclical. There have been periods of high demand, short rig supply and high dayrates, followed by periods of lower demand, excess rig supply and low dayrates. Periods of excess rig supply intensify the competition in the industry and may result in some of our rigs being idle for long periods of time. Prolonged periods of low utilization and low dayrates could result in the recognition of impairment charges on certain of our drilling rigs if future cash flow estimates, based upon information available to management at the time, indicate that the carrying value of these rigs may not be recoverable. The increase in supply created by the number of rigs being built, as well as changes in our competitors drilling rig fleets, could intensify price competition and require higher capital investment to keep our rigs competitive. In addition, the supply attributable to newbuild rigs, especially those being built on speculation, could cause a reduction in future dayrates. In certain markets, for example, we are experiencing competition from newbuild jackups that are scheduled to enter the market in 2010 and beyond. The entry of these newbuild jackups into the market may result in lower marketplace dayrates for jackups. Similarly, there are a number of deepwater newbuilds that are scheduled to enter the market over the next several years, which could also adversely affect the dayrates for these units. The recent worldwide instability in the financial and credit sectors and economic recession could have a material adverse effect on our financial position, results of operations and cash flows. The recent worldwide financial and credit situation has reduced the availability of liquidity and credit to fund the continuation and expansion of industrial business operations worldwide. The shortage of liquidity and credit combined with recent substantial losses in worldwide equity markets led to a recession in the United States, Europe and Japan. A slowdown in economic activity caused by a worldwide recession, combined with lower prices for oil and gas, reduced worldwide demand for energy and demand for drilling services. If demand for drilling services declines, we could experience a decline in dayrates for new contracts and a slowing in the pace of new contract activity. Crude oil prices declined significantly in the second half of 2008 after reaching an all-time high. Crude oil prices during 2009 increased over the course of the year, but did not return to the prior historic high levels. Demand for our services depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices. Demand for our services is particularly sensitive to the level of exploration, development, and production activity of, and the corresponding capital spending by, oil and natural gas companies. Any prolonged reduction in oil and natural gas prices or material impairment of our customers cash flow or liquidity, including their access to capital, could result in lower levels of exploration, development and production activity. Lower levels of exploration activity could result in a corresponding decline in the demand for 10

13 our drilling services, which could have a material adverse effect on our financial position, results of operations and cash flows. The financial situation may also adversely affect the ability of shipyards to meet scheduled deliveries of our newbuilds and our ability to renew our fleet through new vessel construction projects and conversion projects. The ongoing global financial and credit situation may impact on our liquidity and financial condition. The global financial and credit situation and ongoing instability in the global financial system may impact our liquidity and financial condition, and we may face significant challenges if conditions in the financial markets deteriorate. Banks and other lenders have suffered significant losses and have implemented stricter standards for lending, which has contributed to a general restriction on the availability of credit. It may be difficult or more expensive for us to access the capital markets or borrow money at a time when we would like, or need, to access capital, which could have an adverse impact on our ability to react to changing economic and business conditions, and to fund our operations and capital expenditures and to make acquisitions. The ongoing instability among financial institutions could also impact our lenders and customers, causing them to fail to meet their obligations to us. While the impact of the ongoing instability in the global financial system on our future liquidity and financial condition cannot be predicted, we will continue to monitor it. Construction, conversion or upgrades of rigs are subject to risks, including delays and cost overruns, which could have an adverse impact on our available cash resources and results of operations. We currently have significant new construction projects and conversion projects underway and we may undertake additional such projects in the future. In addition, we make significant upgrade, refurbishment and repair expenditures for our fleet from time to time, particularly as our rigs become older. Some of these expenditures are unplanned. These projects and other efforts of this type are subject to risks of cost overruns or delays inherent in any large construction project as a result of numerous factors, including the following: shortages of equipment, materials or skilled labor; work stoppages and labor disputes; unscheduled delays in the delivery of ordered materials and equipment; local customs strikes or related work slowdowns that could delay importation of equipment or materials; weather interferences; difficulties in obtaining necessary permits or approvals or in meeting permit or approval conditions; design and engineering problems; latent damages or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions; unforeseen increases in the cost of equipment, labor and raw materials, particularly steel; unanticipated actual or purported change orders; client acceptance delays; disputes with shipyards and suppliers; delays in, or inability to obtain, access to funding; shipyard failures and difficulties, including as a result of financial problems of shipyards or their subcontractors; and failure or delay of third-party equipment vendors or service providers. Failure to complete a rig upgrade or new construction on time, or the inability to complete a rig conversion or new construction in accordance with its design specifications, may, in some circumstances, result in loss of revenues, penalties, or delay, renegotiation or cancellation of a drilling contract. For example, drilling contracts for our newbuild rigs currently under construction include provisions that would allow our customers to terminate the contract if we experience construction or commissioning delays, many of which are beyond our control. In the event of termination of one of these contracts, we may not be able to secure a replacement contract on as favorable terms, or at all. Additionally, capital expenditures for rig upgrade, refurbishment and construction projects could 11

14 materially exceed our planned capital expenditures. Moreover, our rigs undergoing upgrade, refurbishment and repair may not earn a dayrate during the period they are out of service. Possible changes in tax laws could affect us and our shareholders. We are a Swiss company and operate through various subsidiaries in numerous countries throughout the world including the United States. Consequently, we are subject to changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in the U.S., Switzerland or jurisdictions in which we or any of our subsidiaries operate or are resident. Tax laws and regulations are highly complex and subject to interpretation. Consequently, we are subject to changing tax laws, treaties and regulations in and between countries in which we operate, including treaties between the United States and other nations. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. If these laws, treaties or regulations change or if the U.S. Internal Revenue Service or other taxing authorities do not agree with our assessment of the effects of such laws, treaties and regulations, this could have a material adverse effect on us, including the imposition of a higher effective tax rate on our worldwide earnings or a reclassification of the tax impact of our significant corporate restructuring transactions. In addition, the manner in which our shareholders are taxed on distributions on, and dispositions of, our shares could be affected by changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in the U.S., Switzerland or other jurisdictions in which our shareholders are resident. Any such changes could affect the trading price of our shares. We could be adversely affected by violations of applicable anti-corruption laws. We operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and our code of business conduct and ethics. We are subject, however, to the risk that we, our affiliated entities or their respective officers, directors, employees and agents may take action determined to be in violation of such anticorruption laws, including the U.S. Foreign Corrupt Practices Act of 1977 ( FCPA ). In 2007, we began an internal investigation of the legality under the FCPA of certain activities in Nigeria. Any violation of the FCPA could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Further, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management. For a discussion of our ongoing internal investigation relating to our operations in Nigeria, see Part II, Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations - Internal Investigation. Failure to attract and retain highly skilled personnel or an increase in personnel costs could hurt our operations. We require highly skilled personnel to operate and provide technical services and support for our drilling units. As the demand for drilling services and the size of the worldwide industry fleet increases, shortages of qualified personnel have occurred from time to time. These shortages could result in our loss of qualified personnel to competitors, impair our ability to attract and retain qualified personnel for our new or existing drilling units, impair the timeliness and quality of our work and create upward pressure on personnel costs, any of which could adversely affect our operations. We may have difficulty obtaining or maintaining insurance in the future and we cannot fully insure against all of the risks and hazards we face. No assurance can be given that we will be able to obtain insurance against all risks or that we will be able to obtain or maintain adequate insurance in the future at rates and with deductibles or retention amounts that we consider commercially reasonable. 12